Gessler rule stifles B corp signups

Many Colorado companies are failing to register as public benefit corporations, despite a new law providing for the socially responsible designation, because of a rule from Secretary of State Scott Gessler’s office that could require them to disclose their financials.

Just 55 companies have registered as public benefit corporations in Colorado, according to Gessler’s office. By contrast, 250 businesses registered in the first four months after a similar law was passed in Nevada. Colorado’s public benefit corporations law took effect April 1.

Proponents say they expected far more Colorado companies to adopt the designation, which safeguards businesses from shareholder lawsuits when they engage in socially responsible activities that don’t necessarily help maximize profits. In the past, businesses have been legally obligated to maximize shareholder returns and profits. Under this new classification, however, they can do such things as pay higher wages to employees or invest in environmental programs, for example, instead of devoting all their cash to the bottom line.

Under a new law, businesses now can register with the Secretary of State’s Office to attain recognition as a public benefit corporation. Gessler’s office, however, has said it may require companies that register to also file under the state’s Charitable Solicitations Act, which forces them to disclose their revenue and charitable contributions.

No other states require companies to register as a charity in order to be designated as a public benefit corporation.

Gessler’s rule has dissuaded larger, private companies from registering because they are wary of sharing their financial performance, said Erik Trojian, director of policy for Wayne, Pa.,-based B Lab. The nonprofit certifies what it calls “B Corporations,” or companies that meet its standards of social and environmental performance, accountability and transparency.

B Lab has lobbied for public benefit corporation legislation in Colorado and other states. Twenty-five states as well as the District of Columbia have authorized B corps, and similar bills in two other states are awaiting governors’ signatures, Trojian said.

But in Colorado, he said, “We have a whole bunch that are refusing to register. It’s to some degree a naivete on the secretary of state’s part for not completely understanding this sector of the economy, because these are not charities.”

Kim Coupounas, director of B Lab Colorado and co-founder of Boulder-based outdoor company GoLite, called the Secretary of State’s Office’s additional requirements to register under the Charitable Solicitations Act “regulatory overreach.”

“You don’t want to have a situation where a company that does that much good in the community is discouraged from doing that good,” she said.

Sen. John Kefalas, D-Fort Collins, along with Rep. Pete Lee, D-Colorado Springs, led last year’s efforts to create the designation through House Bill 1138 after a similar bill failed in 2012. A number of the companies have had concerns about registering under the Charitable Solicitations Act, Kefalas said.

“Companies have said, ‘No, we shouldn’t need to do this. It would be just another bureaucratic hassle.’ There were efforts to try to address that with the Secretary of State’s Office,” Kefalas said. “They said they would not change their opinion.”

Rich Coolidge, spokesman for Gessler, acknowledged that Gessler “has had concerns with implementing public benefit corporations.” Gessler opposed the legislation in 2012, although he did not take a position on last year’s legislation.

Coolidge noted that a staff member from the Secretary of State’s Office had testified before lawmakers that the public benefit corporation definition was so broad that it would include charitable organizations.

“We’ve specifically told (public benefit corporations) they may also have to register as a charity if they meet that definition,” Coolidge said, “just like we tell entities that register as nonprofit corporations they may have to register as charities, as well.”

Colorado has a variety of corporations, limited liability companies, partnerships and public benefit corporations, he added.

“Some donate through non-profits, charities and other avenues regardless of how they are incorporated,” he said.

Indeed, businesses have done community service projects that may not have benefited their bottom lines regardless of state rules. In June, companies not registered as public benefit corporations from throughout the Front Range joined B Lab to help Lyons with flood-recovery efforts, including trail restoration, debris removal and tree planting.

Apart from their generous efforts, businesses still have concerns about how the Secretary of State’s Office has handled the situation. Kefalas said the state Legislature may address the situation in its next session.

Steve Lynn can be reached at 970-232-3147, 303-630-1968 or slynn@bizwestmedia.com. Follow him on Twitter at @SteveLynnBW.

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